Being based in Boulder, Colorado there are many entrepreneurs around. Entrepreneurs are known for their enthusiasm, creativity, can-do attitude, resourcefulness, and positivity. Entrepreneurs are not known for being particularly good record custodians however. Any type of business will have contracts with service providers, clients, and other parties. Often, as the Parties begin to perform their contractual obligations, things inevitably change and what was originally written into the contract needs to be adjusted, modified, or reset entirely. While this situation certainly applies to business, it could also apply to a residential or commercial lease. Many people are put off by additional paperwork and since the Parties already have a track record of good faith cooperation and performance, often times modifications or subsequent contracts are never documented. The result is a series of oral contracts, verbal agreements, or other unwritten modifications.
So how enforceable are oral contracts, verbal agreements, and other unwritten modifications? The answer, as it almost always is when it comes to a legal issue, is it depends. A well drafted contract will include provisions that firstly, expressly state that the executed contract represents the entire agreement between the two parties. This means no other agreements, negotiations, conversations, e-mails, etc. have any impact on that specific agreement’s obligations. Secondly, a well drafted agreement will always require any changes or modifications must be in writing, signed by both parties, and is then incorporated into the original agreement. In short, the first step to determining whether an unwritten modification is enforceable to is review the original agreement.
What about a situation where the original agreement is oral? Oral contracts can be enforceable, but as a general rule, they are not recommended and should not be relied on. There are four elements required for any contract, verbal or written, to be enforceable. The first element is an offer. One party must make a promise to perform an action or refrain from an action. In exchange, the other party must provide the second element for an enforceable contract which is known as consideration. Consideration may be money or something else of value in exchange for the first party’s performance of their promise. Consideration is the difference between a contract and a gift. A gift does not require consideration in return whereas a contract does. The third element is that the offer must be accepted. Acceptance is often the grayest element of contract law. Acceptance may be proven by an express acceptance such as a signed contract or it may be shown by performance. Acceptance may also be oral but this is ambiguous. With no written record clearly showing acceptance, this can be the root of much complexity surrounding oral contracts. Lastly, the court element is known as a “meeting of the minds.” This simply means both parties understood the basic terms of the contract.
So what does all this mean? Firstly, it means for the sake of clarity, all contracts, modifications, and agreements should be written. If you believe you are a party to an oral contract it is often a very fact specific and sometimes difficult to prove analysis. The realities of business and real estate is that contracts are often negotiated in different formats. A negotiation may start via e-mail, continue in person, followed by a phone call, and finally in a document. Establishing that a contract is enforceable becomes more difficult the farther removed you get from a basic written contract. Some contracts must be written (such as contracts for the sale of real estate) but the vast majority of agreements are not subject to such a requirement. When their is a dispute over whether a contract was formed orally, courts may look at a variety of factors including, but not limited to, the previous dealings between the two parties, the performance, the subjective (meaning one party’s) view of whether or not their was intent to form a contract.
In conclusion, it’s always best to have an agreement in writing. If you choose to enter into a written agreement, it is recommended you consult an attorney to review or assist with drafting the agreement. If you believe you have an oral agreement, you should absolutely consult an attorney. An attorney can review the facts and make an educated and informed decision about where you stand. That being said, oral contracts are an inexact science with no hard and fast rules. Many clients think an oral contract is preferable at the beginning because it is cheaper, easier to negotiate, and may be easier to get out of but often times, the exact opposite is true. While it may be cheaper and easier to negotiate, the end result is often more complex, time consuming, and expensive that if a clear written agreement was signed from the outset.